By building more effective nonprofit boards, we can achieve more ambitious results for our communities and the world. Federal and state laws regulating nonprofit boards make that possible by giving us flexibility in designing each board. Boards can be created to maximize every organization’s revenues and its impact.
Nonprofits face increasing financial challenges, while the demand for their services grows. See the annual Nonprofit Finance Fund State of the Nonprofit Sector Survey for details. (And by the way, if you’re a nonprofit, NFF would like you to complete the 2011 Survey here.)
Boards are the solution. As I noted last week, "Nonprofit boards alone have leadership authority—the legal and fiduciary responsibilities—for the organizations that can invigorate the economies of our communities, protect the environment, provide access to education and health care for all, alleviate poverty around the world, and more." It’s the role of the board to work with the CEO to determine the mission, envision the organization’s greater potential, establish the revenue model and strategy to achieve success, ensure that there is a measurement process to monitor progress, and work ambitiously to help maximize the nonprofit’s revenues and impact.
What the law expects of boards
The law generally requires that board members of tax-exempt organizations adhere to the duties of care – pay attention to the organization’s activities and operations, including attending board meetings; loyalty – exercise their power in the best interest of the organization and not in their personal interest, and disclose any potential conflicts of interest; and obedience – make decisions in advancement of the organization’s mission and within the scope of the nonprofit’s governing documents. Model legislation also requires that a board be comprised of at least three board members, have officer positions, and board member terms of a maximum of five years (but no requirements either way regarding term limits). (I’m not a lawyer, so don’t consider this legal advice. Check with your attorney.)
Designing your board
A board that is fully committed to its mission and its greatest potential has the opportunity to determine – and if it likes, to alter – its size, composition, structure, committees, and practices. Importantly, the board will need to adhere to its bylaws in amending any portion of the bylaws that dictate matters of size, composition, etc.
There is no one-size-fits-all, but imagine the following possibilities:
Through a change in the bylaws:
- Reducing the board size to a reasonable number (from 40 to 7 - 18, for example), to ensure that board discussions are productive, meaningful, and related to key strategic issues, and to enable good board decision-making
- Eliminating the Executive Committee’s decision-making authority, so that the full board is participating in decisions, and thereby adhering to the duty of care
Establishing expectations and holding board members accountable:
- Improving board meeting attendance from the all-too-common 50% to the best possible: 90% (duty of care)
- Improving board member participation in financial giving from the all-too-common 55% to 100% (demonstrating personal commitments and providing support, while also positioning the organization to attract "outside" donors)
Transitioning board composition:
- Building a board comprised of men and women from diverse backgrounds and perspectives
- Including an attorney, a CPA, and one or two with financial and investment expertise
- Including two people with expertise in the organization’s field of work
- Being highly selective in choosing each board member for their experience and expertise and making the board’s expectations clear
Establishing a schedule of board meetings:
- Often enough to address key strategic issues
- Not so often that the board is delving into operational matters
- Focusing each meeting on key strategic issues
- Engaging all board members in productive and meaningful discussions
- Sending relevant, concise information to the board in advance
Establishing a committee structure:
- Through which board members – specifically qualified for each committee – convene on board-related matters (finance, or board governance, for example) that require more dedicated time and attention than board meetings allow
- Including an audit committee that is separate from the finance committee
- Not too cumbersome with more committees than are needed
- Potentially with ad hoc committees that can be used only as needed
Usually, not many of these matters actually need to be stated in your bylaws, but do check with your legal counsel. And the less you include in your bylaws, the better, thereby allowing the board greater flexibility in adjusting its practices as needed. For example, board committees and committee descriptions, and a board statement of expectations are very important, but such information can be provided outside of the bylaws.
The nonprofit can establish additional groups for non-governing purposes. Examples might include a national or international advisory council of esteemed individuals who do not convene or have any fiduciary responsibilities, yet whose names and endorsements lend gravitas; a junior board of young professionals for fundraising, awareness-building, and volunteering; a friends board for financial contributions and fundraising; and so on.
Beyond designing your board in terms of size, structure, and so on, the key to board effectiveness is the quality of board leadership and the organization’s CEO.
As board members, you are guardians of the public’s trust to ensure that funds that are contributed to nonprofits are used for their intended purposes. And given the tremendous needs of our communities and our world, you have the opportunity to make so much possible. Let this be the year.